Toppled King sails back into view as a battle royale looms in Leighton boardroom

The deal marks the end of one of the most poisonous cross-border takeover battles Germany has seen. ACS group, run by Florentino Perez, the billionaire president of the football club Real Madrid, is expected to announce this week that a satisfactory agreement with Hochtief has been concluded that will lead to significant changes on the supervisory board of Hochtief. With confirmation of Hochtief's new chief executive, Frank Stieler, at Thursday's AGM, co-operation and an open relationship between ACS and Hochtief will be the new maxim.

For Leighton, which is 54.6 per cent owned by Hochtief, the implications are profound. When the Leighton board meets next Monday, its directors, headed by David Mortimer, will be bracing for a showdown with the corporate version of a Spanish-German armada.

Speculation is rife that this will include the return of the former Leighton boss Wal King to the Leighton board as a non-executive director. The board accelerated his retirement plans late last year after a rift emerged between him and the Germans.

Days after King's departure was announced, ACS launched a hostile takeover offer for Hochtief. The talk at the time was that ACS made the move because it was concerned that Leighton, regarded as the jewel in Hochtief's crown, would go off the rails. Given the mess that has erupted at Leighton in the past few months, including write-downs in its Middle East business, massive cost blowouts in its Brisbane Airport Link project and the desalination plant project in Victoria, as well as the need to raise equity in a heavily discounted capital issue, Leighton is now in need of strong leadership.

With a deal struck days before Hochtief's AGM, a showdown has been avoided. Tensions erupted in recent weeks when Hochtief offered ACS one seat on its supervisory board. With more than 40 per cent of the shares, ACS believed it was entitled to four seats.

Changes are expected to include the appointment of a new chairman to the supervisory board, Manfred Wennemer, the former boss of the tyre giant Continental, who will replace Detlev Bremkamp. The former Hochtief managing director Hans-Peter Keitel is also expected to depart. Keitel fought tooth and nail to derail ACS's bid for the company.

These changes will pave the way for significant changes at Leighton. At its board meeting next Monday Leighton's directors can expect a visit from the new Hochtief boss, Frank Stieler, and the director Angel Garcia Altozano, who is an ACS representative on Hochtief's supervisory board. (German companies have two boards, a supervisory board of independent directors and an executive board of senior management. Australian boards are an amalgam of this.)

ACS will be conscious of the Leighton board's perceived one-sided support for Hochtief's defence against the Spanish. It will also be cognisant of the Leighton board's role in overseeing huge write-downs, a looming investigation by the corporate regulator and the spectre of litigation as class action lawyers and the litigation funder IMF investigate whether they have sufficient evidence to launch a class action based on misleading information to shareholders.

In recent months Leighton has lost a string of senior executives, and more are believed to be considering leaving. The decision by the highly respected Bill Wild to leave at the end of next month was a particular blow as he was in charge of sorting out some of the key problem areas at Leighton because of his expertise and corporate memory.

David Stewart took the top job at Leighton on January 1 and almost immediately announced a strategic review. While this is sensible, as is looking for cost savings, one concern is that some of the cost cutting may have unintended consequences. For instance, an announced cost reduction of $100 million by combining the travel, procurement and IT overheads appears unrealistic. In any event, central control by Leighton of its operating companies is likely to create other problems.

Leighton's bigger government projects have strict probity conditions, so if there is even a hint that its various competing divisions could access certain information, it would compromise the ability for the operating companies to compete against each other on key projects.

It will take strong leadership to stabilise the company before it gets much worse. King has to take responsibility for some of the problems, but he has a record of success, and his skills would be best served rehabilitating the company.

Right now the company is struggling with low morale, poor project management and a lack of direction. Leighton has record work in hand, and a strong underlying business, but if it does not start concentrating on its business there may be worse to come.